Can I File Chapter 7 Bankruptcy If I Make Too Much Money?
Yes. You may still be able to file Chapter 7 bankruptcy even if you make more than the median income for your household size. Being above the income limit does not automatically disqualify you from Chapter 7.
Many people assume that Chapter 7 bankruptcy is only available to people with very low incomes. That is not necessarily true. The Chapter 7 qualification process involves several factors, including your household income, household size, expenses, and financial circumstances.
If you live in Tampa or elsewhere in Florida and are considering Chapter 7, it is important to understand how the bankruptcy means test actually works before assuming you make too much money.
What Is the Chapter 7 Income Limit?
The first step in determining whether you qualify for Chapter 7 is generally to compare your household's income with the applicable median family income for a household of your size.
The median-income figures are adjusted periodically. They also vary depending on where you live and the number of people in your household.
If your income is below the applicable median income, you may be able to qualify for Chapter 7 without completing the second part of the means test.
But what happens if your income is above the median?
It does not necessarily mean you cannot file Chapter 7.
Instead, you may need to complete the second part of the Chapter 7 means test.
What Is the Chapter 7 Means Test?
The means test is a calculation used to determine whether an individual or family with above-median income has enough disposable income to repay creditors.
The calculation is more complicated than simply looking at your paycheck and deciding whether you make too much money.
Certain expenses and deductions are taken into account. Depending on your circumstances, these can include allowable housing, transportation, taxes, insurance, childcare, healthcare, secured debt payments, and certain other expenses.
As a result, someone with a relatively high gross income may still qualify for Chapter 7.
Your Gross Income Is Not the Same as Your Ability to Pay
One of the biggest misconceptions about Chapter 7 is that the bankruptcy court simply looks at your annual salary. It does not work that way.
For purposes of the means test, bankruptcy law uses specific rules for determining income and allowable expenses. Your financial situation may look very different after those calculations are applied.
For example, a person with a high household income may also have significant expenses associated with:
A mortgage or rent
Vehicle loans
Taxes
Health insurance
Childcare
Necessary medical expenses
Transportation
Other allowable expenses
Those expenses can affect the means-test calculation.
What If I Make More Than the Florida Median Income?
Making more than the applicable Florida median income does not automatically prevent you from filing Chapter 7.
Instead, you may need to complete the full means-test analysis.
The important question becomes whether, after applying the applicable bankruptcy rules, your income and allowable expenses indicate that you have sufficient disposable income to fund a Chapter 7 repayment alternative.
This is why it is a mistake to look at an income chart and conclude that you are automatically ineligible.
Household Size Matters
The applicable median-income figure depends in part on the size of your household.
For example, the income threshold for a household of one person is different from the threshold for a household of four.
Determining household size can sometimes be more complicated than simply counting the people who live in your home. Bankruptcy law contains specific rules that may affect how household size is determined.
If you support children or other household members, this can be particularly important.
Does My Spouse's Income Count?
If you are married and only one spouse is filing Chapter 7, determining whether your spouse's income must be included can be complicated.
The analysis can depend on factors such as whether you are filing jointly, how your finances are maintained, and whether you are legally separated.
Do not assume that you automatically fail the means test because your spouse has a significant income.
Likewise, do not assume that your spouse's income can simply be ignored.
A bankruptcy attorney can review your household finances and determine how the applicable rules affect your case.
What About Overtime, Bonuses, or Other Income?
Another important issue is determining what income should be included in the bankruptcy calculations.
Depending on the circumstances, income can include more than your regular salary. Overtime, bonuses, commissions, self-employment income, and other sources of income may need to be considered.
Because the means test uses specific time periods and bankruptcy forms, it is important to calculate income correctly rather than relying on your current monthly paycheck alone.
Can I Still File Chapter 7 If I Fail the Means Test?
Failing the means test can create a significant problem for a Chapter 7 case, but the answer is not always as simple as "you cannot file bankruptcy."
The means test contains multiple calculations and exceptions. There are also circumstances in which a debtor's financial situation may require additional analysis.
In addition, the means test is not the only issue that can affect Chapter 7 eligibility.
If your income is high enough that you are concerned about qualifying, you should have your situation reviewed before deciding that Chapter 7 is unavailable.
What If My Income Recently Increased?
Timing can also matter.
If you recently received a raise, changed jobs, worked substantial overtime, or received a large bonus, your current income may not tell the entire story.
The bankruptcy means test generally looks at income received during a specified period before filing. Therefore, a recent change in income can affect the calculation differently depending on when you file.
This is one reason it can be helpful to speak with a bankruptcy attorney before filing rather than waiting until after you have completed your bankruptcy forms.
What If I Have a Lot of Debt?
Having significant debt does not automatically qualify you for Chapter 7.
However, the amount and type of debt are obviously important when evaluating your overall financial situation.
Chapter 7 can potentially eliminate many types of unsecured debt, including qualifying credit-card debt, medical bills, personal loans, and certain other obligations.
If you are earning a good income but are overwhelmed by debt, Chapter 7 may still be an option depending on your circumstances.
Don't Assume You Make Too Much Money
One of the most common mistakes potential bankruptcy clients make is deciding they cannot file Chapter 7 based solely on their salary.
The reality is more complicated.
Making more than the applicable median income does not automatically mean you are disqualified from Chapter 7 bankruptcy.
Your household size, income history, allowable expenses, debts, and other circumstances can all affect the analysis.
How a Tampa Bankruptcy Attorney Can Help
If you are considering Chapter 7 bankruptcy in Tampa, an attorney can review your financial information and determine whether you may qualify.
A typical evaluation may involve reviewing:
Your recent pay stubs
Household income
Tax returns
Household size
Mortgage or rent
Vehicle payments
Taxes and insurance
Childcare expenses
Medical expenses
Credit-card debt
Personal loans
Other debts and monthly expenses
The goal is to determine how the bankruptcy rules apply to your actual financial situation, rather than relying on a general income chart.
Frequently Asked Questions
Can I file Chapter 7 if I make $100,000 a year?
Possibly. There is no single salary that automatically makes everyone ineligible for Chapter 7. Household size, location, income history, and allowable expenses all matter.
Can I file Chapter 7 if I make $150,000 a year?
Possibly. A higher income may require a more detailed means-test analysis, but earning $150,000 does not automatically prevent someone from filing Chapter 7.
What happens if I am over the Chapter 7 income limit?
If your income is above the applicable median, you generally proceed to the second portion of the means test. Your allowable expenses and other factors are then considered.
Does having a high income mean I should file Chapter 13?
Not necessarily. Chapter 13 may be appropriate in some situations, but being above the median income does not by itself mean you must file Chapter 13.
How do I know if I qualify for Chapter 7 in Florida?
The best way to determine whether you qualify is to have your income, household size, expenses, and debts reviewed under the current bankruptcy rules.
Talk to a Tampa Chapter 7 Bankruptcy Attorney
If you live in Tampa and are struggling with credit-card debt, medical bills, personal loans, or other unsecured debt, don't assume you make too much money to file Chapter 7.
The Chapter 7 qualification process is more complicated than simply comparing your salary to an income chart.
Mosakowski Law, P.A. helps individuals in Tampa and throughout the surrounding area evaluate whether Chapter 7 bankruptcy may be an option.
Contact our office to discuss your situation and learn whether filing Chapter 7 may be right for you.
This article provides general information and is not legal advice. Bankruptcy eligibility depends on the facts and circumstances of each individual case. Current income limits and bankruptcy rules should be verified before filing.
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